Int'l Bus. Machs. Corp. v. Khoury

• Citation: 177 A.3d 724,170 N.H. 492
• Decision Date: 21 December 2017
• Docket Number: No. 2016–0258,2016–0258
• Parties: INTERNATIONAL BUSINESS MACHINES CORPORATION v. Gary Joseph KHOURY
• Court: Supreme Court of New Hampshire

170 N.H. 492

177 A.3d 724

INTERNATIONAL BUSINESS MACHINES CORPORATION

v.Gary Joseph KHOURY

No. 2016–0258

Supreme Court of New Hampshire.

Argued: March 30, 2017

Opinion Issued: December 21, 2017

Jackson Lewis P.C., of Portsmouth (Martha Van Oot on the brief and orally), for the appellant.

Honig & Barnes LLP, of Haverhill, Massachusetts (Robyn Frye Honig and Timothy H. Barnes on the brief, and Ms. Honig orally), for the appellee.

DALIANIS, C.J.

The appellant, International Business Machines Corporation (IBM), appeals an order of the Superior Court (Schulman, J.) upholding a wage claim decision issued by the New Hampshire Department of Labor (DOL) in favor of the appellee, Gary Joseph Khoury. We affirm.

Before addressing the merits of this appeal, we note that we are dismayed by the tone of the dissent. The dissent impugns our motives, stating that we have have "rewrit[ten] the contract to strike a better deal" for Khoury "than he made for himself" because of our "paternalistic instinct," which, the dissent states, "contravenes the proper bounds of judicial authority." It is unfortunate that our dissenting colleague views our contract interpretation as result-oriented merely because he disagrees with it.

I

The following facts were found by the DOL hearing officer, are established in the record, or are otherwise not in dispute. In January 2013, Khoury began working for IBM as a sales representative in the federal business unit, and remains a current employee of IBM. Khoury earns both a base salary and commissions.

As part of his work, Khoury sells IBM's products to the federal government. At the DOL hearing, Khoury explained that IBM occasionally sells software to a certain "business partner," who, in turn, has the "rights, so to speak, to the sales that the sales teams were transacting with the" federal government. He further explained that IBM does not profit from the distribution of its products to the government by this business partner, but IBM assists in the subsequent deployment process.

Khoury testified that, prior to July 2014, IBM paid its sales representatives commissions based solely upon revenue-generating sales. According to Khoury, under this arrangement, sales representatives lacked an incentive to promote the deployment of IBM products that had previously been sold to the intermediary business partner, and a number of sales representatives had quit and found other jobs within IBM. In July 2014, IBM rolled out a new pilot program that allowed sales representatives to earn commissions on both the sale and deployment of IBM's products. Under this program, sales representatives would receive a "primary" commission for reaching a revenue or sales quota and a "secondary" commission for reaching a deployment quota. Khoury testified that, approximately every six months, IBM sent each sales representative an individualized Incentive Plan Letter (IPL) defining the method by which the sales representative's commissions would be calculated for sales and new deployments.

In mid-July 2014, IBM presented Khoury with an IPL for the period of July 1, 2014, to December 31, 2014. Pursuant to the terms of the IPL, Khoury would receive the "secondary" commission at issue in this case after meeting a quota of $571,000 for certain specified signings. The IPL contained several prominent disclaimers, however:

Right to Modify or Cancel: The [IPL] does not constitute an express or implied contract or a promise by IBM to make any distributions under it. IBM reserves the right to adjust the [IPL] terms, including, but not limited to, changes to sales performance objectives (including management-assessment objectives), changes to assigned customers, territories, or account opportunities, or changes to applicable incentive payment rates or quotas, target incentives or similar earnings opportunities, or to modify or cancel the [IPL], for any individual or group of individuals, at any time during the [IPL] period up until any related payments have been earned under the [IPL] terms.... Employees should make no assumptions about the impact potential [IPL] changes may have on their personal situations unless and until any such changes are formally announced by IBM.

Adjustment for Errors: IBM reserves the right to review and, in its sole discretion, adjust or require repayment of incorrect incentive payments resulting from incomplete incentives processes or other errors in the measurement of achievement or the calculation of payments, including errors in the creation or communication of sales objectives. Depending on when an error is identified, corrections may be made before or after the last day of the full-[IPL] period, and before or after the affected payment has been released.

....Plan-to-Date Advance Payments: Regardless of the start date of your assignment to [an IPL], the full-[IPL] period ends on the last day of the last month of the full-[IPL] period. Incentive payments you may receive for [IPL]-to-Date achievement (before the full-[IPL] period is over and before its business results are complete) are a form of advance payment based on incomplete business results. As each month's or quarter's business results become available, [IPL]-to-Date achievement against any full-[IPL] performance objectives will be updated and the amount of your [IPL]-to-Date advance payments will be recalculated. Deductions for overpayments or reversed achievement may be made from any such [IPL]-to-Date advance payments until the full-[IPL] payments are earned under the [IPL] terms after the full-[IPL] period and its business results are complete.

Full–Plan Earnings: Regardless of your start date, your incentive payments are earned under the [IPL] terms, and are no longer considered [IPL]-to-Date advance payments, only after the measurement of complete business results following the end of the full-[IPL] period or (if applicable) after the measurement of complete business results after the date you left the Incentive Plan early. Incentive payments will be considered earned only if you have met all payment requirements, including: (1) you have complied with the [IPL], the Business Conduct Guidelines and all other applicable IBM employment policies and practices; (2) you have not engaged in any fraud, misrepresentation or other inappropriate conduct relating to any of your business transactions or incentives; (3) and the customer has paid the billing for the sales or services transaction related to your incentive achievement.

....

Significant Transactions: IBM reserves the right to review and, in its sole discretion, adjust incentive achievement and/or related payments associated with a transaction which (1) is disproportionate when compared with the territory opportunity anticipated during account planning and used for the setting of any sales objectives; or for which (2) the incentive payments are disproportionate when compared with your performance contribution towards the transaction.

The IPL also stated that IBM was "not obligated to offer ... an alternative [IPL] ... [or] another job role within the company" to any sales representative who did not accept the IPL terms.

Khoury acknowledged the terms of the IPL and accepted it on July 16, 2014. By the end of the IPL period, he had met and surpassed his quota for the specified signings. At the DOL hearing, he testified that, in December 2014, his manager informed him that this entitled him to a commission payment of $154,124.21. That same month, he received $47,619.23 in advances from IBM towards this commission. Khoury testified that he subsequently made repeated unsuccessful inquiries about the additional funds.

In March 2015, Khoury filed a wage claim with the DOL for $106,504.65, the balance of the commission. One month later, Khoury was informed that IBM planned to change his IPL terms by increasing the original quota from $571,000 to $1,000,000. Khoury testified that he was told that he could expect to receive a final payment of approximately $35,000 to $36,000. He stated that he then received a payment of $34,558.71 in May. Upon receiving this payment, Khoury reduced his wage claim against IBM from $106,504.65 to $71,946.27.

Khoury testified that participation in the pilot program was mandatory, and that sales representatives "ha[d] to accept the terms of [the IPL], or [they] ha[d] to either change [their] position within the company or find a new place to work." He also stated that IBM did not begin to describe the pilot program as "a pilot program" until "later in 2014 and into 2015" and that, before that, it was considered "the program you're going to sell under." Khoury explained that his understanding, after reading the IPL, was "that all of the work that I did during the [IPL] term ... and all of the commissions that I earned would be paid during the term[ ] of this [IPL]."

Khoury testified that, although IBM had recognized him as a "Global Sales Hero" for his sales achievements in the third quarter of 2014, it delayed paying him the commissions he was owed. According to Khoury:

[I]n early November 2014, we were on a conference call in which we were told not that anyone was being capped, not that commissions were changing, or anything else, that it was a new pay system, and therefore it was taking a little bit longer.

... They were trying to get our commissions to [route] through this new system, and there was going to be a check paid to us in full at the end of November 2014. That didn't happen.

... [E]verything that was spoken to us was around this common lie that it was just a matter of time, that the system was broken, you gentlemen did a wonderful job, you're going to get your money, and it's—just wait a little bit longer. Trust us and wait.

Khoury stated that it was not until May 2015 that he was informed by "IBM federal leadership" that his sales quota would be adjusted upward, thereby reducing his commission.

Susan Deyo, IBM's Vice President of Sales Strategy and Transformation for North America,...